Last week I discussed how withdrawal liability can attach to a company that does not have a union. Today, is how withdrawal liability can attach to asset purchasers of a company that contributes to underfunded pension plans through the doctrine of successor liability.
Most of you will stop reading now….
Penn Traffic Company (“PT”) operated grocery stores and warehouses where it stored groceries for distribution. Some employees of PT’s Syracuse warehouse were members of Teamsters Local 317.
C&S acquired some of PT’s locations and employees. It did not acquire PT’s Syracuse warehouse because of concerns over potential withdrawal liability. Instead, C&S and PT formed an independent contractor relationship regarding the Syracuse warehouse. PT retained responsibility for employees, facilities, leases, material handling, transportation equipment, and contracts associated with the Syracuse warehouse.
PT ultimately filed for Chapter 11 bankruptcy and closed the Syracuse warehouse. This triggered over $63 million in withdrawal liability owed by PT to the pension fund. The fund recovered only $5 million from PT and sought to recover the rest from C&S.
So, does C&S – who purchased all the assets of PT except for the Syracuse store – have successor liability and owe the pension fund $58 million for withdrawal liability because PT filed for bankruptcy and stopped making pension contributions?
The Pension Fund argued that C&S should be liable because it specifically sought to evade liability by acquiring all of PT’s locations except for Syracuse location.
The court ruled that C&S did not have successor liability. Although it continued to operate all other stores it acquired, C&S did not substantially continue operating PT’s Syracuse warehouse.
Importantly, the court said, “C&S could not be said to evade or avoid liability merely by declining to assume that liability in the first place.”
“[J]ust because successor liability can apply to withdrawal liability,” explained the court, “does not mean that any asset purchaser qualifies as a successor under the substantial continuity doctrine. The substantial continuity doctrine is applied most comfortably when a purchaser acquires the assets of a seller – not when a purchaser fails to acquire those assets.”
Purchasers of assets with underfunded pension plans must use extreme caution when closing deals if they want to avoid potential withdrawal liability. When not executed correctly, ERISA’s rules can reach far and wide to recoup withdrawal liability payments from unsuspecting asset purchasers.